Cafe Rouge Owner To Offload Loss-Making Sites

By Mark Kleinman, City Editor

The owner of the Cafe Rouge and Strada chains is preparing a sweeping financial restructuring that will result in the break-up of one of the UK's biggest restaurant operators.

Sky News has learnt that Tragus Group is considering the launch of company voluntary arrangements (CVAs) that would enable it to shed or restructure some of its rent obligations at Cafe Rouge and Bella Italia, another of its businesses.

It is also poised to launch a sale process for Strada, the premium Italian chain which has been struggling at a time when consumers are continuing to keep a close eye on discretionary spending.

CVAs are processes which allow financially-distressed companies with significant leasehold property commitments to reduce or walk away from rent payments at some of their sites.

Such arrangements can be controversial because while they require the consent of landlords, they often leave property-owners with little choice but to accept them because the alternative – a formal administration procedure – would give them an even worse deal.

Companies which have used CVAs in recent years include Fitness First and JJB Sports.

Restaurant industry sources said that Tragus could make an announcement about the restructuring proposals as soon as Wednesday.

The final details of the plans are still being worked on and Tragus could yet decide to proceed with a restructuring that does not involve formal CVAs, one added.

Zolfo Cooper, a professional services firm, is understood to have been lined up to oversee the financial overhaul.

If the CVAs do proceed, they would affect approximately 125 Café Rouge sites and 90 Bella Italias across the UK, accounting for about two-thirds of Tragus's UK assets.

Strada operates from 70 venues, while Tragus's other brands include Belgo, the specialist Belgian chain.

The group has struggled under the weight of the debt burden used to finance its takeover in 2006, during a period in which leveraged buyouts were reaching their peak.

Pre-tax losses at the restaurant operator nearly doubled to £36m in the 12 months to June 2, 2013, the latest trading period for which results have been publicly disclosed.

Tragus was formerly owned by Blackstone, the American private equity giant, but was taken over earlier this year by lenders led by Apollo Management.

Its performance under its previous owners, Legal & General Ventures and ECI, were in contrast to Blackstone's period of ownership, with both making substantial sums from their ownership of the business.

The company is now chaired by Charles Gurassa, a prominent entrepreneur who previously ran Lovefilm, the multi-channel movie service which was acquired by Amazon.

Employing more than 7,000 people, the impact of the restructuring on Tragus employees will partly depend on the outcome of negotiations with landlords in the coming weeks, sources said.

The news emerges at a time of significant corporate activity in the restaurants sector.

Cinven, another private equity group, is conducting an auction of PizzaExpress, which is said to have attracted interest from a handful of other investment funds and a number of unnamed parties from the Middle East and Asia.

Spokespeople for Tragus and Zolfo Cooper declined to comment.

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